But as long-time readers are aware, this is a weekend newsletter written by someone with zero legal training, so here’s the short version of the story stripped of all legal nuance.

Amazon is the world’s largest internet company and has ambitions in retail. For a long time, Amazon was exclusively focused on online retail. However, over the last few years, Amazon has been venturing into offline retail as well. Specifically, it’s venturing into buying big, overvalued retail chains which it can acquire for a bargain. 

In the US, in 2017, it bought the grocery store chain Whole Foods for nearly $14 Billion. 

A year later, in India, it bought a large stake in More, India’s fourth-largest supermarket chain. 

Essentially, Amazon loves groceries and supermarkets, and wants as much of these as possible. 

So a year later, it set its sights on the largest prize of all in India—Future Retail, India’s second largest retail chain. 

But there was a tiny hitch. 

As many of you may be aware, India has fairly restrictive laws around foreign direct investment into offline retail companies. The laws do not permit foreign companies to own more than 51% of multi-brand retailers, and even that involves getting an express permission from the government of India along with a host of other riders and conditions. 

But complicated laws are the restaurants where expensive lawyers go to feast on their all-you-can-eat buffet. 

So Amazon went ahead and hired some of the most expensive lawyers in India to help figure out a way. Amazon had done this for the More deal as well, with one source claiming that just figuring out how to structure the deal took all their lawyers ‘nearly a month’. I won’t bore you with the details, but the main takeaway is that Amazon had figured out a way to purchase offline retail companies in a way that didn’t require it to take any government approvals. 

However, Future Group was a larger, more complicated company. 

And so, the lawyers got to work. 

Months later, when they emerged, what they came out with was this. 

Amazon would acquire a 49% stake in Future Coupons, the promoter entity of Future Retail Limited (FRL), an Indian multi-brand retail company. Since Amazon technically wasn’t investing directly into a retail company but its ‘parent’ company, no special permissions were needed, and the FDI laws didn’t apply.

To be doubly sure, Amazon made the purchase through its investment arm, which gave it some protection, and prevented the deal from being seen as a foreign direct investment. 

Then it did one final thing—a move which can only be described as…*chefs kiss*

Amazon gave itself an option to acquire all or part of the promoter’s share into Future Retail, which could be exercised anytime after 3 years and before the next 10 years, if and when the law permitted it to do so. For this, it even paid a premium. 

Basically, Amazon threw a handkerchief on a seat through the window on the Future Group train. So anytime in the future, when the law changes to allow FDI in multi-brand retail, Amazon would waltz in, and sit down to occupy the prime real-estate that is Future Retail. 

And Amazon waited. 

It waited as the Covid-19 pandemic hit, which shut down malls across India, which sent Future Group deeper into debt. 

It waited as Future Group came under pressure from its lenders, led by the State Bank of India, to manage its debt. 

It waited as Future Retail’s share price fell by 70% by August 2020, as compared to where it was at the beginning of the year. 

Kishore Biyani, the founder of Future Group, later revealed that he reached out to Amazon ‘eight times’ for help, and never got any assistance. 

Look, I’m not going to lie to you. When news got out that Reliance was going to purchase Future Group for around Rs 24,000 crore (~$3.3 Bn), there was a lot of confusion, especially because of Amazon’s prior involvement. To revisit our earlier analogy, if you put a handkerchief on a seat, and then the train itself is sold, what happens to your spot? 

Even tech journalists had no idea what was going on. At first, there were reports that Reliance didn’t want Amazon involved at all, and was even prepared to buy them out, but Amazon wasn’t interested. Then there were reports that Reliance wanted Amazon in a more strategic role as an investor directly into Reliance Retail’s parent company. 

Finally, when the dust settled and the terms of the deal between Reliance and Future Group emerged, it became quite clear what transpired. 

The Times of India reported the news under the headline ‘RIL’s deal for Future retail biz blocks Amazon’

If you are interested in the details, it looks like this. 

Turns out Reliance has some smart lawyers too. 

With me so far? 

Great, because there’s one little detail you need to know. 

So it turns out, in the original agreement that Future Group signed with Amazon, apparently, there was a clause that expressly forbade Future Group from selling any stake or forging any alliance with a list of 30 companies in the retail space without Amazon’s consent.

One of those companies was Reliance. 

Things moved pretty quickly after that. 

In early October, Amazon sent Future Group a legal notice claiming breach of contract, and dragged the company to...

...the Singapore International Arbitration Centre, or the SIAC.  

If you are wondering what the SIAC is, let me explain.

Because it’s the wildcard in today’s story. 

Quick. Fair. Just. 

The SIAC is a non-profit body that’s set up to resolve disputes through a tribunal. 

A good way to describe it is that it’s an ‘alternative dispute resolution’ mechanism that’s quite popular, especially with cross-border transactions. It’s fairly standard practice in contract law to refer major disputes to bodies like the SIAC. Amazon didn’t drag Future Group to Singapore on a whim—the SIAC was specifically listed as the body to refer disputes in their agreement, and Amazon was simply following through. 

Now you can ask, but why is the SIAC listed as the body to resolve disputes? 

Every country has its own judicial system, and surely that would be the first port of call. The only reason why someone would go to the SIAC would be because, for some reason, they don’t trust the country’s judiciary to do the right thing. 

So which are the top foreign countries at SIAC?

Let’s find out. 

If you dig up the SIAC’s annual report in 2019, it lists out the break-up of arbitrations done by it by international and domestic cases. 

Here’s what the distribution of the top ten foreign users of the SIAC looks like. 

For some strange and unexplainable reason, foreign companies seem to prefer doing arbitrations in neutral bodies like the SIAC rather than Indian courts. 

I have no idea why they do this, because as we all know,  India has a robust, thriving, and independent judiciary that through their collective power and wisdom, render judgements in a way that’s quick, fair, and just through a bevy of excellent judges, solid decision-making skills, and strong contempt of court laws.

No idea. 

But here’s Nishith Desai, founder of Nishith Desai Associates, who has an explanation as to why some companies may prefer bodies like the SIAC.

On 25 October 2020, the SIAC passed an emergency order restraining Future Group and Reliance Industries Limited from proceeding with the deal. 

A small, but significant victory for Amazon. 

Amazon isn’t the only company to do this. Historically, several companies have been unhappy with decisions and treatment meted out to them in India and have won significant judgements in International courts and tribunals. The most recent example is Cairn Energy, which we wrote about in our other newsletter, Beyond The First Order, which has decided to take extreme measures: 

Yes, that’s right. Cairn Energy is considering seizing India’s assets in order to enforce arbitration award...you know, like Air India’s airplanes and the like. 

Crazy.

This is where you ask the most important question, you know, the one that’s been in your head for the last few paragraphs. Yes. That one. Ask it. 

Is a decision made by the SIAC, an international tribunal in Singapore, binding under Indian law? 

The answer is….maybe, but not exactly, but…well, it’s complicated. 

“Amazon is showing a dog in the manger attitude”

A lot of things happened after the SIAC passed its emergency order. Letters were sent. Counter-letters were sent. Reliance, for its part, largely proceeded to ignore the order and decided to go ahead with its deal to acquire Future Group. 

And finally, after a series of events, in November last year, everyone ended up at the Delhi High Court. Future Group dragged Amazon there to stop it from blocking the deal with Reliance. 

Things got quite heated. Senior Advocate Abhishek Manu Singhvi, representing Reliance Retail, said that “Amazon is showing a dog in the manger attitude”, and that “even an acrobat will blush on Amazon’s stand and the court should nip this mischief in the bud.”

But amidst all this, a crucial point was raised. 

Was Amazon, through its contract that restricted Future Group from selling to Reliance, merely protecting itself, or was it controlling Future Group?

I can’t stress this enough. 

This distinction is everything. 

Because if Amazon was protecting itself, it was fine, but if the court interpreted it as a method of controlling Future Group, then it would mean that Amazon effectively had a controlling stake in Future Group. 

If that was true, then Amazon, a foreign company, had control over Future Group — an Indian multi-brand retail company. A controlling stake, for which it hadn’t taken permission from the government of India. 

In essence, it would be a violation of India’s FDI laws.

This would make the agreement signed between Future Group and Amazon illegal.

The business publication, BloombergQuint, reported the claim under the marvellous and compelling headline, “If I Have A Relationship With Amazon, I Have Violated The Law, Future Retail Says”

Think about this for a moment. Think about how crazy the whole thing is.

Gopal Subramanium, the lawyer who was representing Amazon, was flabbergasted when this point was raised.

The Delhi High Court disagreed. 

In late December, in a prima facie opinion, the court noted. 

Last week, India’s stock exchanges gave the go-ahead to the Future deal, after communicating with India’s markets regulator, the Securities and Exchange Board of India (SEBI).

Amazon went back to court, and filed another suit to block the deal and to detain Kishore Biyani in a civil prison. This time, it went back under section 17(2) of the Arbitration and Conciliation Act, 1996. The section has a provision that “allows a party to seek enforcement of an interim order passed by an arbitral tribunal in the same manner as it would for a court order”.

The Delhi High Court continues to hear the case about whether the order passed by the SIAC applies or not. 

In court, Future Retail claimed that if the deal with Reliance didn’t go through, it would collapse. 

There’s a final footnote to this saga. 

Amazon’s attempt to fly too close to the sun has not gone unnoticed. 

Yesterday, the Enforcement Directorate launched a probe against Amazon, to investigate if it violated the Foreign Exchange Management Act (FEMA) in its deal with Future Retail — essentially, a violation of India’s FDI laws. 

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